U.S. role in Iraq oil contracts is under scrutiny

Monday

Jun 30, 2008 at 6:00 AM

By Andrew E. Kramer THE NEW YORK TIMES

A group of American advisers led by a small State Department team played an integral part in drawing up contracts between the Iraqi government and five major Western oil companies to develop some of the largest fields in Iraq, U.S. officials say.

The disclosure, coming on the eve of the contracts’ announcement, is the first confirmation of such direct Bush administration involvement and is sure to stoke criticism of the deals.

In their role as advisers to the Oil Ministry, U.S. government lawyers and private sector consultants provided template contracts and detailed suggestions on drafting the contracts, advisers and a senior State Department official said.

It is unclear how much influence their work had on the Iraqi Oil Ministry’s decisions. The advisers themselves, who along with the diplomatic official spoke only on condition of anonymity, say that their involvement was only to help an understaffed Iraqi ministry with technical and legal details of the contracts and that they in no way helped to choose which companies got the deals. Repeated messages left with the Oil Ministry’s press office were not returned.

At a time of spiraling oil prices, the no-bid contracts, which are expected to be awarded today to Exxon Mobil, Shell, BP, Total, Chevron as well as several smaller oil companies, are coming as a rare prize to the industry in a country with some of the world’s largest untapped fields and potential for vast profits.

The deals have been criticized by opponents of the Iraq war, who accuse the Bush administration of working behind the scenes to ensure Western access to Iraqi oil fields even as most other oil exporting countries have been sharply limiting the roles of international oil companies in development.

Though enriched by high prices, the companies are starved for new fields. The U.S. government, too, has eagerly encouraged investment anywhere in the world that could bring new oil online to alleviate the exceptionally tight global supply, which is a cause of high prices.

Iraq is particularly attractive in that light, because in addition to its vast reserves, it also has the potential to bring new sources of oil onto the market relatively cheaply. This potential is closer to being realized as sabotage on oil export pipelines has declined with improved security. U.S. military officials say the pipelines now have excess capacity, waiting for output to increase at the fields.

But any perception of American meddling in Iraq’s oil policies threatens to further inflame opinion against the United States, particularly in Arab nations that are skeptical of American intentions in Iraq, which has the third-largest oil reserves in the world.

“We pretend it is not a centerpiece of our motivation, yet we keep confirming that it is,” Frederick D. Barton, senior adviser at the Center for Strategic and International Studies, said in a telephone interview. “And we undermine our own veracity by citing issues like sovereignty, when we have our hands right in the middle of it.”

U.S. officials are directly advising Iraq on a host of issues, from electricity to education. But they have avoided the limelight when questions turn to how Iraq should manage its vast oil endowment, insisting that it is a decision that must be left to the Iraqi government. The State Department advisers on the Western contracts say they purposely avoid trying to shape Iraqi policy.

“They have not negotiated with the international oil companies since the 1970s,” said the senior State Department official, who was speaking about Iraqi oil officials and who is directly involved in shaping U.S. energy policy in Iraq. The advice on the drafting of the contracts was not binding, he said, and sometimes the ministry chose to ignore it. “The ministry did not have to take our advice,” he said, noting that the Iraqis had also turned to the Norwegian government for counsel. “It has been their sole decision.”

The advisers say they were not involved in advancing the oil companies’ interests, but rather treated the Oil Ministry as a client, the State Department official said. “I do not see this as a conflict of interest,” he said.

The new oil contracts have become a significant political issue within the United States.

Three Democratic senators, led by Charles E. Schumer of New York, sent a letter to the State Department last week asking that the deals be delayed until after the Iraqi parliament passes a hydrocarbons law outlining the distribution of oil revenues and regulatory matters. They contend the contracts could deepen political tensions in Iraq and endanger American soldiers.

This assertion prompted objections by the Bush administration and the secretary of state, Condoleezza Rice, who said the deals were purely commercial matters.

“Iraq is a sovereign country, and it can make decisions based on how it feels that it wants to move forward in its development of its oil resources,” said Dana M. Perino, the White House spokeswoman.

Rice, speaking on Fox News this month, said “The United States government has stayed out of the matter of awarding the Iraq oil contracts. It’s a private sector matter.”

Advisers from the State, Commerce, Energy and Interior departments are assigned to work with the Iraqi Oil Ministry, according to the senior diplomat.